The Papillon probably originated in continental Europe and was a favorite at the French court. The most famous owner was Henry III; documentation of his devotion to the breed lies in his declaration of the Papillon as the official dog of the Royal Court during his tenure. Other famous owners are said to have been Marie Antoinette, and Madame de Pompadour.

There is evidence that these small dogs were favorites of European aristocrats, particularly French royalty, during the time of the Old Masters, as Continental Toy Spaniels (Phalènes and Papillons) were included in many Old Master royal portraits from as early as the sixteenth century.

There are many stories about the Papillon. Marie Antoinette was said to have walked to the guillotine clutching her small dog under her arm. Tradition has it that her dog was a small spaniel that had been brought to the French court from Spain on the back of pack mules. According to the story, her pup was spared and cared for in a building in Paris still called the Papillon House. Marie's small spaniel was said to have descended from a very old drop-eared breed known as the Epagneul Nain Continental, or Continental Dwarf/Toy Spaniel that appeared in church frescos and paintings as early as the 13th century.

The Papillon is still officially referred to as the Epagneul Nain Continental (ENC) in non-English-speaking countries. The name Squirrel Spaniel also has been used, most likely referring to an earlier standard in which the tail set is described as "curling over the back as a squirrel's." One version of the history of the two varieties of ear shape in the ENC ("Papillon" to denote the erect ear and "Phalène" to denote the dropped ear) is that toward the end of the 19th century, breed fanciers bred a version of the spaniel whose ears stood up. This dog was said to have been nicknamed papillon based on the impressively large, erect ears that resembled the wings of a butterfly. The drop-eared variety of the breed came to be called the Phalène (which means "night moth"). Both types are still bred today and appear in the same litter. The Papillon variety is much more common, although recently the Phalène has undergone a resurgence in popularity.